Problem 4--Sell Now or Process Further (6 points)

Vernon Company makes two products from a common input. Joint processing costs up to the split-off point total $43,200 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:

	Product X	Product Y	Total
Allocated joint processing costs	$19,800	$23,400	$43,200
Sales value at split-off point	$22,000	$26,000	$48,000
Costs of further processing	$25,400	$16,400	$41,800
Sales value after further processing	$52,200	$38,200	$90,400

Required

1. Should Product X be sold as is or processed further? Show computations to support your answer and only use the relevant costs.

2. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

3. Should Product Y be sold as is or processed further? Show computations to support your answer and only use the relevant costs.

4. What is the minimum amount the company should accept for Product Y if it is to be processed further?

Problem 5--Utilization of a Constrained Resource (8 points)

Jeanke Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:

	Product
	A		B		C
Selling price	$180		$270		$240
Less variable expenses:
Direct materials	24		72		32
Other variable expenses	102		90		148
Total variable expenses	126		162		180
Contribution margin	$54		$108		$60
Contribution margin ratio	30%		40%		25%

The same raw material is used in all three products. Jeanke Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier's plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound. Demand for each product is 700 units per week.

Required

1. How many pounds of material would be required to satisfy demand for all three products? This is in total, not for just one unit. And the total for all three added together.

2. Compute the amount of contribution margin that will be obtained per pound of material used in each product.

3. Which product would you recommend that the company work on next week first? Second? Third?

4. Based on your decision in (c), what is the maximum contribution margin (in total) that the company will make next week?